Independence: concern over conflicts as external owners may seek access to clients

External owners of law firms in the post-Clementi era will have to offer something more than passive investment if they are not merely to be extra mouths to feed, it was claimed last week.


Speaking at the Law Society's law management section annual conference in London - run in conjunction with the International Bar Association - accountant George Bull said external owners needed to offer their access to markets, experience and reputation if they are not to reduce law firms' profitability.


Mr Bull, a professional practices partner at accountants Baker Tilly, said investment also offered lawyers potential exit routes and an answer to their succession problems.


However, he also predicted that a new breed of 'carpet-bagging' solicitor may emerge - 'singularly valuable' rainmakers who are well paid for their equity by external owners when their firm is taken over but leave as soon as they are able and repeat the trick elsewhere.


Margaret Robertson, joint managing director of leading London private client firm Withers, said one problem with external investment would be conflicts, as there is not enough money in law firms to offer a decent return. The appeal to external owners, she suggested, could be the access they would get to the firm's clients.


Ms Robertson explained that some of her firm's private clients run major concerns and are constantly being chased by banks and others for their business. 'They value the independence of a law firm,' she said.


Jonathan Gulliford, head of RAC Legal Services, highlighted research that showed how solicitors are perceived by the public as unapproachable. 'Any private client practice that pretends nothing is happening and there is no need to change their business practices or the way they interact with clients will go out of business,' he claimed.


Mr Bull cautioned that many small firms are already just three to six months of bad trading away from going bust, while leading law firm management expert Professor Stephen Mayson said it is unlikely that firms of five to 20 partners have sufficient capital to respond to the new environment.


However, Stephen Denyer, regional managing partner for Europe at magic circle firm Allen & Overy, said the City giant is happy as it is. He said: 'The worldwide operations of our firms are funded entirely by our partners. We like this arrangement and do not intend to change it. The provision of legal services is not a very capital-intensive business. I doubt if there is a very significant demand for external funding.'


In a poll, 56% of delegates said the most negative impact of the Clementi reforms would be competition from firms that have better-resourced external owners, and especially pressure to reduce fees.